MSC Industrial Supply has posted another strong fiscal quarter, reporting accelerated 2018 third quarter sales that were boosted by the company's two recent acquisitions.
The Melville, NY-based company — No. 11 on Industrial Distribution's 2017 Big 50 List — reported its Q3 fiscals on Wednesday (ended June 2), showing that sales of $828.3 million increased 11.3 percent year-over-year (YoY) and grew7.7 percent sequentially from Q2. MSC said Q3 had approximately 500 basis points of growth from acquisitions, powered by the company's 2018 purchase of fastener distributor All Integrated Solutions for $86 million, and 2017 acquisition of metalworking distributor DECO Tool Supply for $42 million. The company said Q3 organic sales grew 6.1 percent.
MSC's total Q3 profit of $79.1 million increased 25.8 percent YoY, while operating profit of $115.4 million increased 13.4 percentand operating margin of 13.9 percent increased 20 basis points. Excluding acquisitions, operating margin of 14.5 percent jumped 80 basis points.
"The manufacturing environment in the third fiscal quarter was healthy, and the pricing environment sustained, with positive price/cost in the quarter," said Erik Gershwind, president and CEO of MSC Industrial Supply. "We continued to deliver gross margin stability, and our ongoing productivity efforts resulted in operating margin expansion. This was despite sales growth that was somewhat below my expectations due to the impact of our sales effectiveness initiatives and the related lower sales headcount.
"While our fourth quarter organic growth guidance falls short of my expectations for performance in this environment, I expect a return to more typical organic growth levels after a couple of quarters as we complete our sales force effectiveness initiatives and expand our sales team. As we do so, we will benefit from the leverage inherent in our business model, and we expect to continue achieving our long-term annual incremental margin target range."
MSC said it expects Q4 sales to be between $829 million and $844 million, with average daily sales growth of roughly 9.3 percent YoY a the midpoint. Excluding acquisitions, Q3 net sales are expected to be between $778 million and $793 million, with average daily sales growth of roughly 4.0 percent YoY).
In Q3, MSC's average daily sales grew by 14.6 percent YoY in April; 11.6 percent in May; and approximately 10.0 percent in June. Here is how MSC's YoY average daily sales have fared by month over the past 13 months:
- June '18 (estimate): $311.2 million (+10.0%)
- May '18: $247.7 million (+11.6%)
- April '18: $261.4 million (+14.6%)
- March '18: $319.2 million (+8.6%)
- February '18: $258.7 million (+10.7%)
- January '18: $257.9 million (+10.6%)
- December '17: $252.5 million (+6.6%)
- November '17: $221.1 million (+11.5%)
- October '17 : $246.7 million (+11.6%)
- September '17: $300.9 million (+12.7%)
- August '17: $246.5 million (+10.2%)
- July '17 : $236.0 million (+12.1%)
- June '17: $271.3 million (+6.6%)
- May '17: $222.0 million (+5.5%)
- April '17: $228.1 million (+1.5%)
- March '17: $293.8 million (+4.5%)
In Q3, e-commerce represented 60.6 percent ($502.2 million) of MSC's total sales — up from 60.2 percent in Q2 and 59.8 percent in Q1 and marking the largest amount of e-commerce sales for the company yet, topping Q3 2017's 60.5 percent. E-commerce comprised 60.1 percent of MSC’s total 2017 sales.
By customer type, 68 percent of MSC's Q3 sales were to manufacturing and 32 percent were to non-manufacturing — identical to Q2 and Q1. Avergae daily sales to manufacturing customers grew by 12.0 percent in Q3, while growing 9.6 percent to manufacturing. Those figures outpaced respective growth of 8.9 and 9.3 percent in Q2.
By geography, MSC's Q3 sales increased in all four domestic regions and internationally. Regional sales growth in Q3 was as follows:
- Midwest: +26.9 percent (+21.6 percent in Q2)
- Northeast: +3.3 percent (+4.1 percent in Q2)
- Southeast: +6.2 percent (+4.0 percent in Q2)
- West: +5.0 percent (+4.7 percent in Q2)
- International & Other: +19.2 percent (+16.4 percent in Q2)
MSC's total headcount of 6,611 at the end of Q3 was up by 119 from the end of Q2. The company ended Q3 with a total field sales headcount of 2,329 — up 44 from the end of Q2.